Over the hump for oil demand

Kannu
Here's a fascinating economic tipping point for you son. The world you will grow up in will be different from what I grew up in. Energy will not be that important.
This will have serious geopolitical and economic not to mention social implications. Here's something to chew over, what will you do to take advantage of this? Short some stocks? Buy something? Which ones? Which markets? Which countries?
Love
Baba

I saw this article when using the Financial Times app and thought you might be interested:
Financial Times,
Over the hump for oil demand
--
By Christof Ruehl
--
Energy intensity is falling as the world is using less oil, gas and coal and other fuels to deliver each additional dollar of GDP, says BP’s Christof Ruehl
Read the full article at: http://on.ft.com/1d23Wq6

Ant and the Grasshopper–the UK & Norway

Both the UK and Norway found oil in the North Sea. The UK decided to spend the proceeds and tax the extractors and spend that as well on mainly current spending. Norway decided to put that into a fund and only use the profits. So now the Norwegian fund has grown to Eur 430 billion. While the UK has a trillion pound debt. Just saying.

Read this interview from the Norwegian Ambassador to the EU. I quote

A stereotype about Norway is that it is sitting on a lot of money proceeding from its oil and gas sales. What do you do in your country with this money?

You are thinking of what we in popular refer to as the oil fund, formally named the Pension Fund Global. The notion is very simple and we are not the only ones who have done it. The fund now has the size of around €430 billion and still growing.

We are not in position to inject all this money into our economy, it would completely destroy it.  Instead we only spend about 4% of the surplus, which is estimated to be the long-term profit of the fund. The rest is set aside in order to pay - not only my pension when I retire - but for the generations to come. It’s a transfer of natural wealth in the ground into money that will balance our wealth over many generations to come. It’s a challenging exercise, but it has a broad political consensus and I think that’s the strength of the entire construction.

Is it possible to use these huge amounts to help boost the EU funds designed to prevent new crises from happening – the EFSF [the European Financial Stability Facility] or its successor ESM [the European Stability Mechanism], or the IMF?

The key point with the Pension Fund is that it’s strictly a financial vehicle, not a strategic vehicle for Norwegian interest in different parts of the world. If we were to make investments of more strategic reasons, we would easily end up in situations of second guesses; why didn’t we do this or that ...

The fund and its management is probably the most open fund in the world, and this is to demonstrate that the fund is managed strictly for financial purposes linked to the basic role of the fund, namely to take care of the values of many generations. The issue whether the fund should be used to invest to solve [the] immediate crisis in Europe or elsewhere is simply a non issue. In cases where we would like to contribute and where we have contributed, it would be a political decision and by using public money available.

Let me make a reference to the most recent example: as you may recall on 9 December the European Council agreed to strengthen IMF resources by €200 billion and they encouraged non-EU countries to do a similar contribution. Ten days later Norway announced that we were providing a €7-billion additional loan to the IMF as a direct response to the encouragement by European leaders and the European Council. This money was taken from regular sources, in this case guarantees from our national bank. 

So the key point is that the Pension Fund Global is a 100% financial instrument for the purposes I alluded to. Our contributions to the IMF and the close to €2 billion that we contribute to reduce economic and social disparities in the new members of the European Union through the Norway Grants are political decisions taken and financed by regular sources.

Now who looks after our children and invests their money and who fitters all their money? The UK will say that it invested in its people now, but looking at the productivity, the performance of UK students in PISA tests, etc. etc. doesnt show much return there, does it?

The story of the Ant and Grasshopper comes to mind.

Put up the price and demand drops

Pretty straightforward, eh? When the price of petrol goes up, one starts to drive less. And for governments who end up taxing everything that moves, they end up getting lower amounts of revenue. Laffer Curve. Welcome. Well, even I, who drives very rarely, have found this behaviour. So its good to see the results here. I quote:

The government has lost almost £650m in tax revenue in the first 12 weeks of this year thanks to a drop in the amount of petrol and diesel being used by British motorists compared with the same period three years ago, according to the AA.

And this isnt going to change, the government will keep on increasing or at least not decreasing the level of taxation. The voracious monster that is the damn government and public sector will inexorably keep on increasing its level of parasitic blood sucking. When will they understand that this is frankly not sustainable?

I am actually fully cognisant of the train crash in the USA in terms of the debt ceiling and the repercussions on the economy if the debt ceiling isn't raised. But sod it, somebody has to draw the line somewhere. You simply cannot keep on spending and asking my daughter to pay for you. No thank you, you have to take the pain today, reduce spending and reduce your life style.

Camels instead of the Internal Combustion Engine

Now this is curious. America is moving down to small cars because of rising oil prices. On the other hand, for a country like India, where the cost of any oil price increase compared to income is dramatically bigger than for Americans, what do you do? Answer is simple, you purchase more Camels. I quote:

Farmers in the Indian state of Rajasthan are rediscovering the humble camel. As the cost of running gas-guzzling tractors soars, even-toed ungulates are making a comeback, raising hopes that a fall in the population of the desert state’s signature animal can be reversed.

Technorati Tags: India,Oil and Gas,Inflation,USA,Automobiles,transportation

Bathe once a week to save fuel costs

What a state of affairs! I quote:

South Korea’s soldiers will be asked to make do with one bath a week, while its air force pilots will have to do more training on computers instead of real fighters as record oil prices force the country to take drastic steps to slash its fuel usage.
The measures are among several that arose from an emergency meeting last week where senior officials in the army, navy and air force discussed ways of reducing their fuel bill, a military official said.
“We had to seek emergency steps to save fuel costs because oil prices have gone up too much,” the defence ministry said. It estimated that the military could save about Won77bn ($76m), or 11 per cent of its annual fuel bill, with the moves.

All this to be taken with a grain of piquant salt!!!

Unpalatable choices again for the USA

So here's the problem

1. To reduce greenhouse gases, dont purchase fuels which have a higher greenhouse gas content than conventional fuels. This will obviously drive down carbon emissions and greenhouse gases, or at least, not increase it over and above using normal fuels.

2. To reduce dependence on the horrible middle east and other assorted countries where oil is found, get oil from your next door neighbour who is a friend and colleague. This will reduce transport costs, you can control the output better, less risk of political instability and terrorism and so on and so forth.

Unfortunately, the oil that is produced in Canada violates the first problem. And here's where all that is wrong with American politics comes to the fore. Read and weep.





All this to be taken with a grain of piquant salt!!!

How should heavy-duty trucks be taxed?

ScienceDirect - Journal of Urban Economics : How should heavy-duty trucks be taxed�

This is an interesting paper. Heavy Duty Trucks have a special relationship to roads, pollution, transport, economics, taxation, and the like. In all cases, their impacts are way beyond what you would normally consider for a transport unit (as normally considered, such as a car!), so that is why you have differential taxation on trucks, mainly using road taxes. But this paper develops a framework for taxes on fuel. Quite an interesting one, but I am afraid the political courage to impose taxes on fuel would simply not be there.

This paper develops and implements an analytical framework for estimating optimal taxes on the fuel use and mileage of heavy-duty trucks in the United States, accounting for external costs from congestion, accidents, pavement damage, noise, energy security, and local and global pollution. The analysis allows for endogenous fuel economy, increased auto travel in response to reduced truck congestion, and distinguishes driving by truck type and region. We estimate the optimal (second-best) diesel fuel tax at $1.12 per gallon and implementing it increases welfare by $1.34 billion per annum. Optimizing over both fuel and mileage taxes, and differentiating mileage taxes by vehicle type and region, yields progressively higher welfare gains. The most efficient tax structure involves a diesel fuel tax of 69 cents per gallon and charges on trucks that vary between 7 and 33 cents per mile; implementing this tax structure yields estimated welfare gains of $2.06 billion.

All this to be taken with a grain of piquant salt!!!

Israel plans electric car network

Now this is one reason why I like Israel, the innovation and the courage to invest in strong strategic ideas.

Read and wonder:

Israel will set out plans on Monday to cut drastically its dependence on oil imports, with a private-sector initiative for a nationwide electric car network.
The privately funded plan to build 500,000 recharging points and battery-swap stations for electric cars in the next 18 months has the backing of the government and president, Shimon Peres. Renault and Nissan will develop an electric car with a range of more than 100 miles to be mass-produced from 2011.
Mr Peres told the Financial Times the plan would cut Israel’s oil imports by half within a few years, and Israel could cut the remainder by building solar energy generating plants. “In one decade, we will not need oil.”
Project Better Place has calculated that if Israel’s fleet of 2m cars were all electric, they would require 2,000MW of electricity per year, which could be provided by a one-off investment of $5bn in solar plants.

All this to be taken with a grain of piquant salt!!!

A full tank of gas for the price of an icecream

read and weep!

There is a world where oil costs $100 a barrel, where motorists wince as they fill up the tank and where energy efficiency is a mantra.

And then there is Venezuela. At a Caracas petrol station last week, Gloria Padron, a paediatrician, ticked off items that would cost about the same as the 60 litres of fuel gurgling into her Land Cruiser.

"Let me think. A Magnum ice cream. A cup of coffee. A cheese and ham arepa [sandwich]. Small stuff like that. Can't say I've ever really thought about the price. Why would you?"

When a litre costs 0.7p, and filling the tank of a 4x4 costs 42p, it is a fair question. Petrol is so cheap here - reputedly the cheapest in the world - as to be almost free. Even under the artificially overvalued official exchange rate, petrol is 45 times cheaper than in Britain.

Technorati Tags: Venezuela,Oil and Gas,Subsidies

The Iranian Pakistani Gas Deal Criticism

I am absolutely against this mare's nest of a gas pipeline from Iran to India via Pakistan and have written about this way back in 2004. Nothing has changed. But something caught my eye today. The Iranians are signing a deal with Pakistan itself instead of waiting for the Indians to make their minds up. This is pure politics, no economics nor pure energy! I quote:

Criticism In Iran Over Gas Deal With Pakistan

Iran's ambassador to Pakistan has announced that at the end of this month Iran and Pakistan will sign a deal for Iran to supply gas to Pakistan.

The announcement came a day after the visit by Iranian Foreign Minister Menouchehr Mottaki to Pakistan.

The deal has come under criticism in Iran. Parliamentary committee for National Security and Foreign Policy member Mohammad Mohammedi stated that Iran was supplying gas to Pakistan too cheaply; MPs and economists claimed that the deal was against Iran's own long-term interests; the Majlis (Parliamentary) Strategic Research Center stated that Iran's gas reserves for the next decade are sufficient for domestic consumption only; Majlis Energy Affairs Committee head warned that implementing the deal would force Iran to import oil to meet its own energy needs.

Sources: Fars, Iran, January 5, 2008; Aftab-e Yazd, Iran, January 6, 2008; IRNA, Iran, January 6, 2008

Technorati Tags: Iran,Iran Nuclear Power,Pakistan,India,POL

Breathtaking vision to join gas networks of 8 countries!

I personally like people who paint grand visions which are realistic at the same time. When you hear about it, you go, bloody hell, it makes perfect sense and why on earth did nobody think of it before? Its not like proposing a vision to setup holiday camps on venus, but to join the gas networks of 8 countries. For core infrastructure like this, it is a scale matter, and bigger the scale, the better it is. And it provides energy security to Europe by providing an alternative to Russia. I quote:

Mol, the Hungarian oil and gas company facing a take-over bid from OMV of Austria, has proposed a merger of the gas transmission businesses of eight countries in central and south-east Europe to form a new $10bn company that could be floated on the stock market.
The radical project, given the working name of the New Europe Transmission System, would create one of the biggest gas networks in Europe. It would bring together the pipeline systems of Hungary, Romania, Bulgaria, Slovenia, Croatia, Serbia, Bosnia-Herzegovina and Austria.
Mol says unifying the networks would encourage investment, build connections between countries and create a single gas market in the region. It would also help open up alternatives to Russian sources of supply, such as the Nabucco project to bring gas from the Caspian region to the European Union.

Execution will be tough, but hey, so is any great and wonderful thing!, go for it!

Read, wonder and hope!

All this to be taken with a grain of piquant salt!!!

Lord Brown and the future of energy

I had the privilege of listening to Lord Brown (he of BP Fame). Here is his speech. Very interestingly, he does not sound like a typically demonised big oil head at all. He was very thoughtful, taking about the future, how we have to manage the energy usage and bring it under control. When a person like Lord Brown says that we have to have a good world to enjoy development when asked about the tradeoff between development and sustainable development/climate change, it makes one sit up and listen. Very interesting speech and would strongly suggest reading the whole lot.

Technorati Tags: Energy

The strange case of Mad Dogs and BioFuel Subsidies - absolutely bizarre!

I moaned about the wrongfully applied subsidies on oilseeds and biofuels making foodgrains expensive for the poor across the world.

Further to that, see this oped from Martin Wolf, absolutely brilliant, read and weep!

Energy security and climate change are two of the most significant challenges
confronting humanity. What we see, in response, is the familiar capture of policy making by well-organised special interests. A superb example is the flood of subsidies for biofuels. These are farm programmes masquerading as answers to energy insecurity and climate change. Not surprisingly, they have the depressing characteristics of such programmes:high protection, open-ended support to producers, and indifference to economic rationality.

Already the support in members of the Organisation for Economic Co-operation
and Development costs about $13bn to $15bn a year. But this sum generates much less than 3 per cent of the overall supply of liquid transport fuel. To bring the biofuel share to 30 per cent, as some propose,would cost at least $150bn a year and probably more, as marginal costs rose.Someone needed to take a close look at the rationality of all these supports. An excellent report from the Global Subsidies Initiative of the International Institute for Sustainable Development does just that*. It does not tell a pretty story.

Policy is extraordinarily complex. It can also be highly irrational. Brazil is, for
example, the most efficient supplier of bioethanol, but confronts tariffs of at least 25 per cent in the US and 50 per cent in the European Union. A smaller example is the advantage given to production of“flexible-fuel vehicles” in US corporate average fuel-efficiency standards.Because the fuel-economy credit is biggest for the least energy-efficient models, manufacturers concentrate on sport utility vehicles and light trucks. Yet almost all the drivers of these vehicles use ordinary petrol.The result is greater consumption of petrol, not less.The cost of support per litre of ethanol varies between $0.29 and $0.36 per litre in the US and $1 in the EU (see chart). Support for biodiesel varies between $0.2 per litre in Canada and $1 in
Switzerland.

But the cost of petrol, in terms of equivalent energy units, is $0.34 and of diesel is$0.41. Thus, the subsidy to biofuels is often greater than the cost of the
fossil fuel equivalent. Not surprisingly, the production costs of subsidised biofuels are also generally much higher (see charts).Does this costly shift to biofuels at least deliver reductions in net emissions of greenhouse gases? Not by as much as one might suppose, is the answer. The net greenhouse gas emissions of expensive European rapeseed oil-based diesel are a mere 13 per cent less than those of conventional diesel. Similarly, net emissions from US corn-based ethanol are only 18 percent less than conventional petrol.

All this to be taken with a grain of piquant salt!!!

Now why would you want Iranian Gas?

Indian officials seem to be getting all excited about the Iranian Gas Pipeline all over again. I had seriously thought that they would have given up this silly exercise because of the lack of Indian participation in the trilateral committee meetings between India, Pakistan and Iran but this report seems to say that they are again getting all excited about it.

Here's my previous essay on this topic dating back to January 16, 2004, and nothing has changed since then. The sheer messy geopolitics of Pakistan itself should warn you off on the fact that you do not want your energy supplies in the hands of countries which are basically incapable of managing itself. It is having a full fledged civil war in 2 provinces, terrorist bombings galore and a rabid form of Islamism rampant in there. Furthermore, that country is supporting terrorists within India. Just what kind of stupidity is this?

Technorati Tags: India , Iran , Pakistan , Petrochemicals

Another small skirmish in the new great game in Turkey

I am sure you didn't even notice the fact that now Iraqi Oil is now flowing through the port of Ceyhan in Turkey. See this report.

This is something that the Americans and Europeans desperately want. If they can manage to extract oil from the Middle East and export through Turkey, it kills a whole flock of birds with one stone.

• It removes the bottleneck of the Persian Gulf as a threat to oil shipments.
• It brings Turkey firmly into the western alliance
• It removes Russia as the main supplier of oil/gas for Europe and provides a way to get middle eastern and central Asian oil/gas into Europe outside Russian soil
• It allows the Kurds to have a great new distribution channel which does not go through Shia or Sunni territory!
• It will remove the Southern Iraq vulnerability to the oil pipelines, currently all Iraqi oil is sent out from southern Iraq and Basra
• It will make it easier to attack Iran as there is no threat to oil flowing.
• It also allows the west to put the squeeze on Syria
• It allows for better control over the Caucasian countries

Interesting days ahead, my friends, interesting days ahead.


All this to be taken with a grain of piquant salt!!!

Run for the pyramids, the Indians are coming

Now this is a news item which you would not usually catch. A foreign government, proudly banging the drum about how an Indian firm is going to invest billions of dollars in Egypt in the basic oil refining and downstream activities!!!! Indian firms are investing heavily in Africa, both from a governmental as well as corporate perspective. The government is more interested in gathering petroleum reserves but as one can see, even private firms are making a beeline to do so. It is frankly a one way bet. You get project financing quite easily, there is a very large amount of fixed assets as collateral, Egypt is reasonably safe and the market is guaranteed in India and other places. Plus Egyptian oil is quite sweet. More importantly, what they will do is to use their immense value chain power to drive downstream and generate products ranging from lubricating oil to plastics, fertiliser and other products which need hydrocarbon based raw feedstock. See what Reliance has done in Gujarat and that's what I guess what Reliance will be trying to do in India. Very good move indeed.

But to add a bit of emotion to the story, I was sitting in a hubby bubbly place with Zuhair, a Saudi friend of mine outside Riyadh and we were seeing this story about how somebody is going to take up a franchise of some lubricating oil (I forgot the name of the brand). Zuhair said, quite bitterly as it so happens, "we are the world's biggest petroleum extraction country and we cant even convert it into basic lubricating oil, we are not owners of this country, we are simply one of those old style landlords". That's what I would think as well, with such a huge Arab history, almost floating on a sea of oil, why weren't the Egyptian oil blocks developed by the Egyptian firms? As it so happens, a huge amount of the value addition will simply go back to India. I know that's globalisation for you, but surely the Egyptian Government must have a think about this! It is not like Egyptian entrepreneurs are unable to fund such a large project, they are huge in telecommunications across Europe and the Middle East. Curious.


All this to be taken with a grain of piquant salt!!!

Reliance to invest $10 bn in Egypt

CAIRO: The Egyptian government said on Thursday that the Indian industrial group Reliance will invest $10 billion in the oil refining, petrochemicals and plastics industries in Egypt.

The state news agency MENA said Egyptian Prime Minister Ahmed Nazif announced the decision by the Indian company after meeting Reliance executives in the port city of Alexandria.

Nazif's spokesman, Magdy Rady, said the investments by Reliance would include $1 billion to build an oil refinery and $7 billion in petrochemicals, MENA added. It gave no further details of the projects.

The Egyptian government estimates Indian investments in Egypt are worth $320 million. Reliance Petroleum Limited, a subsidiary of Reliance group, has been importing and marketing Egyptian crude oil since 2001.